There are certain windows that manufacturers, distributors and retailers often fall into when figuring out how much to markup a product in order to maximize margins. Even without the ability to predict when certain things will happen and how it will affect pricing, a comprehensive pricing strategy that adheres to parameters that ensure profitability, flexibility and reliability will serve them well. In such a dynamic environment, it’s important for distributors to have a well-defined and thorough distributor markup pricing strategy. The prices that this distributor charges to the retailers is not only determined by how much they bought the parts from the manufacturer for, but also what the retailer wants to sell it for along with the basic economics of supply (how much is available) and demand (how many people need the product). Their catalog of products spans everything from door handles to floor mats to exhaust pipes and alternators for several different makes and models, bringing their number of SKUs into the thousands. As new cars are made each year, this distributor has to keep up with which parts are still in use, which ones are incompatible with new models and what new parts they must offer as a result of a new car. Let’s use the example of a company that distributes automotive parts from manufacturers to mechanic shops and auto repair stores. Distributor Pricing Dilemma Distributor Markup Auto Parts Example Distributor markup is necessary to ensure that every level of the supply chain runs smoothly and efficiently. While they would prefer to buy in high volumes to keep prices low, distributors don’t always have that luxury. The distributor level has the most variation. In the standard supply chain of manufacturer to distributor to retailer, one of the most consistent challenges is marking up prices so that companies return a profit while also staying competitive. Distributor markup is generally 20%, but depending on the industry, the markup could be as low as 5% or as high as 40%. Distributor markup is when distributors raise the selling price of their products in order to cover their own costs and make a profit.
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